Professional Documents
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Key Information
About Your Pension What to Consider When Faced
(Optional Forms of Benefits) With the Pension Election Decision
Pension Math and
Factors to Consider If you are on the verge of retirement and fortunate enough to have a
pension, you may be faced with an important choice. Should you take the
Pension Maximization
regular, lifetime payments that your company plan offers or should you
What Happens if Your select a lump-sum distribution option and invest the funds on your own,
Company Files for perhaps rolling the proceeds into an Individual Retirement Account (IRA) or
Bankruptcy and Your investing in an annuity form not offered under your company plan that is
Company Plan Is Taken more tailored to your needs? Before you make an irrevocable decision about
Over by the Pension your future, you should take time to understand what options are available
Benefit Guaranty to you and what each choice might mean for you and your family.
Corporation (PBGC)
If you are within a few years of retirement, Also, in the event that you are laid off, its
doing groundwork now can help you good to have thought through this decision
understand your options and allow you to well in advance versus having to make
plan for the retirement income program this important decision amid a barrage of
that you feel is most appropriate for your choices that must be addressed within a
situation before a decision has to be made. short time.
continued
PENSION ELECTION
Your pension payment is an important part Your plan documents will spell out when your benefits
of your overall retirement plan. Be sure to become available and what your monthly payment
options are. For the most part, when you can begin
talk with your Company Human Resources collecting pension benefits is determined by your plan
(HR) Department (who should have the most and is described in the Summary Plan Description. Most
information on your company plan), us and plans will not allow you to receive your pension until
your tax advisor about the following topics: you have separated from service. However, whether you
have separated from service or are still working, upon
Key Information About Your Pension (Optional attaining normal retirement age (usually age 65) you
Forms of Benefits) are eligible by law to begin receiving benefits. Once you
Pension Math and Factors to Consider have separated from service, or turn 65 if still working,
Pension Maximization you will be presented with your options. These may
What Happens if Your Company Files for Bankruptcy include a lump-sum distribution, an immediate monthly
and Your Company Plan Is Taken Over by the benefit or a deferred monthly benefit that usually starts
Pension Benefit Guaranty Corporation (PBGC)? at age 65 or the normal retirement age as defined by
Is Your Company Plan Retirement Benefit Fully your plan.
Covered by the PBGC Guarantees? Once you are eligible to collect, your payment options
We address each of these issues in detail on the following may include some variation of these options:
pages and suggest that you use the information provided
here as a guide for your discussions. SINGLE LIFE OPTION
Suitability: This choice may be appropriate for
Key Information About Your Pension retirees who want income for their own needs and
who dont have dependents or heirs that, in the
You and your advisors will need, at a minimum, an
owners judgment, will need or should be included
up-to-date Summary Plan Description (SPD) and
in future cash flow from this asset. This is the usual
the most recent Individual Plan Benefit Statement
default option for single retirees offered under
(from your Company HR Department). Some plan
many plans; if married, the participants spouse has to
sponsors may send these documents (as well as a copy
consent to this selection.
of the actual Plan document) to the plan participants
automatically. Otherwise, to receive a copy, you should Benefit: It usually provides for the highest payout,
ask your HR or Benefits Department for copies. The since the payment is calculated based solely on the
plan sponsor is required by law to provide you with these life of the person collecting the pension benefit
documents upon receiving a written request. (the annuitant).
Risk: Payments end upon death of the annuitant,
with nothing remaining for family members.
Considerations that favor monthly payments: You dont think your pension plans cost-of-living
increases (if available) will be sufficient to keep up
You are likely to live past the actuarial average.
with the growth of your expenses down the road.
You would like another source of guaranteed
You want to have more control over how your
income to meet current and/or anticipated
retirement funds are invested. (For example, you want
future monthly expenses.
to invest in green technology or dont want your
You want the convenience and security of a money placed with certain controversial companies or
monthly check. in particular industries.)
You are not certain of your desire or ability to You want to leave all or part of this asset to loved ones
effectively manage a potentially large single sum (in addition to your spouse).
(also called a lump sum) payout.
Your plan has a cost of living adjustment that This may not be an all or nothing decision,
increases your monthly pension payments to take depending on the circumstances. Some other
inflation into account. options include the following:
Your spouse may not be as capable as you of managing If you choose a lump-sum benefit and then use all or a
a lump sum. portion of it to buy an annuity, it would also generate
You (and your spouse) have sufficient additional assets regular monthly income. Therefore, the choice of a
saved to address unforeseen economic needs. lump-sum payment does not necessarily mean giving
up the advantages of regular monthly payments, and
Considerations that favor a lump-sum payment: individual annuities may offer other valuable features
You want financial control over the money and have that are not available under your company plan
the self-discipline and investment knowledge needed options. (You should carefully compare, however, the
to manage it well. costs and features of an individual annuity versus the
You believe that you can earn a higher rate of return cost of the annuity benefits offered under the plan to
on your lump sum than what is assumed as part of make an appropriate decision.)
the pension calculation. (Note: You can determine a Another alternative is to just leave the money in
hurdle rate of return, which is the rate you would your former companys pension plan to grow at a
need to achieve so as to have been better off taking the predetermined rate until you are ready to take it. This
lump sum at different assumed life expectancies.) option often provides for lower or company-subsidized
The solvency of your employer or your plan is in management fees versus some other choices. However,
question, and the PBGC does not fully guarantee if your balance is less than $1,000, the company may
all of your company pension plan benefit (see What require you to roll the funds out of their plan.
Happens if Your Company Files for Bankruptcy?).
You dont need additional monthly income to
meet expenses.
Any life insurance proceeds remaining at the death of What Happens If Your Company
the surviving spouse/beneficiary could pass to other Files For Bankruptcy?
family members. There are two common forms of bankruptcy. In Chapter
You could diversify your insurance risk by making 11, a company stays in business while it reorganizes its
sure that the carrier that sells you the insurance policy finances. In Chapter 7, a company goes out of business
is different from the insurance company paying your and liquidates all assets. In Chapter 11, pension and
annuity payments under the company plans policy. health plans are oftenthough not alwayscontinued,
Generally, the younger you are when you purchase the while these plans are terminated in Chapter 7.
life insurance element of this concept the better pension
In either case, if the plan is a standard defined benefit
maximization works, since you lock in the premium rate
retirement plan subject to ERISA, the PBGC guarantees
based on your age at time of purchase and because your
basic benefits earned before your plans termination
health would likely be better at a younger age as well,
date (or the date your employers bankruptcy proceeding
which allows for a better rate. However, this concept
began, if applicable). For 2010, the maximum guaranteed
may work as well even if purchased at retirement time.
amount is $4,500.00 per month ($54,000.00 per year)
We can help you determine if pension maximization
for workers who begin receiving payments from PBGC
works for you.
at age 65. The maximum guarantee is lower if you begin
receiving payments from PBGC before age 65 or if
Generally, the younger you are when you your pension includes benefits for a survivor or other
purchase the life insurance element of this beneficiary. The maximum guarantee is higher if you
concept the better pension maximization are over age 65 when you begin receiving benefits from
works, since you lock in the premium rate PBGC. For a more detailed description of benefits and
the limits on guarantees, see PBGCs publication, Your
based on your age at time of purchase and Guaranteed Pension.
because your health would likely be better
at a younger age as well, which allows for a
better rate.